Competitive Diffusion

47 Pages Posted: 22 Jul 2000 Last revised: 14 Mar 2021

See all articles by Boyan Jovanovic

Boyan Jovanovic

New York University - Department of Economics

Glenn MacDonald

Washington University in St. Louis - John M. Olin Business School

Date Written: September 1993

Abstract

The usual explanation for why the producers of a given product use different technologies involves "vintage-capital": A firm understands the frontier technology, but can still prefer an older, less efficient technology in which it has made specific physical and human capital investments. This paper develops an alternative. "information-barrier" hypothesis: Firms differ in the technologies they use because it is costly for them to overcome the informational barriers that separate them. The paper endogenizes both innovative and imitative effort. The industry life-cycle implications -- declining price and increasing output -- broadly agree with the Gort-Klepper data. Empirically, the paper focuses on the slow spread of Diesel locomotives, which can not be explained by the vintage-capital hypothesis alone. For instance, contrary to that hypothesis, railroads were buying new steam locomotives long after the Diesel first came into use -- exactly as the information-barrier hypothesis would imply.

Suggested Citation

Jovanovic, Boyan and MacDonald, Glenn M., Competitive Diffusion (September 1993). NBER Working Paper No. w4463, Available at SSRN: https://ssrn.com/abstract=232060

Boyan Jovanovic (Contact Author)

New York University - Department of Economics ( email )

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Glenn M. MacDonald

Washington University in St. Louis - John M. Olin Business School ( email )

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HOME PAGE: http://www.olin.wustl.edu/faculty/macdonald/

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